Whitford Properties Limited (in receivership and liquidation) v Bruce
[2015] NZHC 1426
•23 June 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-001977 [2015] NZHC 1426
BETWEEN WHITFORD PROPERTIES LIMITED
(IN RECEIVERSHIP AND LIQUIDATION)
Plaintiff
AND
ROBERT IAN BRUCE First Defendant
COUMAT LIMITED Second Defendant
GREGORY BRUCE HAYHOW Third Defendant
Hearing: 18 June 2015 Appearances:
B Gustafson for Plaintiff
No appearance for First Defendant
S H Barter for Second and Third DefendantsJudgment:
23 June 2015
JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie on 23 June 2015 at 4.30pm
pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:………………………………………….
WHITFORD PROPERTIES LIMITED v BRUCE [2015] NZHC 1426 [23 June 2015]
Introduction
[1] The plaintiff – Whitford Properties Limited (in receivership and liquidation) (“Whitford”) - seeks a freezing order requiring that the second defendant, Coumat Limited (“Coumat”) not dispose of, dissipate the equity in, or further encumber a property situated in Whitford Park and Saleyard Roads, close to Whitford Village and near Auckland (“the property”). Alternatively, it seeks that any sale should only be on the following conditions:
(a) the sale price must be not less than $21 million;
(b) the sale price must be paid in cleared funds with no set off or credit;
and
(c) the net proceeds of the sale must be paid to third party solicitors, to be held on interest bearing deposit pending the determination of the substantive proceedings.
[2] Although the proceedings are in Whitford’s name, they are not being actively pursued by the liquidator. The primary driving force is a Mr Allen, a shareholder in and a director of Whitford. The liquidator has consented to Mr Allen continuing the proceedings.
[3] The first defendant, Mr Bruce, has taken no steps. The application is opposed by Coumat and the third defendant, Mr Hayhow. Mr Hayhow is the sole shareholder and director of Coumat.
Background
A caveat
[4] No party has filed a comprehensive affidavit which sets out the background to this matter. The best attempt is an affidavit sworn by Mr Hayhow dated 26 March
2015. It was not however filed for the purpose of the present application; it was not put in the bundle for the Court; it deals with some aspects only of the factual background. The affidavits filed in respect of the present application are selective. They are confined to aspects of the convoluted transactions which have led to these
proceedings. Frequently deponents have annexed part only of a document to their affidavits. Many of the documents exhibited on which deponents rely are unsigned. Moreover, frequently only one or a limited number of documents in a chain is exhibited. The affidavits refer to earlier affidavits filed in other contexts, often by page number, when the original applications are not paginated.
[5] The position is unsatisfactory,1 particularly given that:
(a) Whitford is relying on the background to the transactions as evidencing the risk of dissipation it is required to establish under r 32.2; and
(b)Coumat and Mr Hayhow are asserting that the actions of Mr Allen justify the steps they and Mr Bruce have taken.
What follows is my attempt to make sense of the affidavits which have been filed.
The background as it appears from the documents filed
[6] Whitford was established in 2002 by Mr Allen and Mr Bruce. They were its directors. Mr Allen and his wife, together with Mr Bruce, were the shareholders in the company.
[7] Whitford purchased the property and it borrowed moneys from the ANZ Bank. The borrowings were secured by a mortgage, a general security agreement and the personal guarantees of Messrs Allen and Bruce.
[8] The property was in two titles with a combined area of approximately 8.7 ha. It had for many years been zoned Rural 1 under the Manukau section of the then Auckland City Council’s Operative District Plan. The two lots combined had a capital value of $3,250,000 as at 1 July 2011.
[9] The property was ripe for development and at some stage (and it is not clear from the affidavits when), Auckland Council proposed rezoning it for residential
purposes under a document known as Plan Change 27.
1 Although Mr Barter, appearing for the defendants, did not raise the issue, it is doubtful whether the applicant has complied with r 32.2(3). It should not be left to the Judge to try and untangle transactions such as those in issue in this case. And see generally Tema Holdings Ltd v Kostanich HC Auckland CP509/92, 16 April 1992.
[10] Whitford wished to subdivide the property, but it faced significant difficulties in its endeavours to do so. First there was the zoning under the operative planning documents. Secondly, and more significantly, before any resource consent could be obtained for a subdivision, provision had to be made for a sewerage/waste water disposal field, either on the land, or on adjoining land.
[11] A Chinese national, Wang Pei Yu, who, it seems, represented various Chinese investors, advanced moneys to Whitford and at some stage, a joint venture agreement to advance subdivision of the property was discussed between Whitford and Wang Pei Yu. It is not clear whether a joint agreement was concluded. The copy of the joint venture agreement exhibited by Mr Hayhow has been signed but it does not seem to be a finalised document. Nor were some of the signatures witnessed.
[12] The Chinese investors associated with Wang Pei Yu owned land which was nearby in Trigg Road through an entity known as Whitford 140 Limited. Mr Allen negotiated a sewage disposal agreement with that company. The agreement apparently gave Whitford an option to use the land owned by Whitford 140 Limited for the disposal of sewage and waste water. Mr Allen also negotiated an agreement between an entity known as Whitford Green Limited and Whitford Park Golf Club Inc which permitted the installation of a pipeline over the golf course from Whitford’s property to the land in Trigg Road owned by Whitford 140 Limited.
[13] Plan Change 27 became operative in December 2012. It rezoned the property as Whitford Saleyard Residential Zone. This zone was part of a new Whitford Village Special Policy Area. This area was intended to allow for the expansion of Whitford Village, with both commercial and residential land uses. Within the Whitford Saleyard Residential Zone there was a limit of 105 new dwellings. Any proposed development exceeding that limit was required to be assessed as a discretionary activity. The plan change required that all dwellings in the new zone had to connect to a reticulated waste water treatment and disposal system funded by the developers of land within the Whitford Village Special Policy Area.
[14] The rezoning increased the value of the property – although by how much is far from certain. I note as follows:
(a) Mr Bruce obtained a valuation from Property Valuations Limited in
September 2013. This valuation estimated the value of the property at
$22.3 million, assuming a subdivision.
(b)In December 2013 Seagar & Partners valued the land, again with the benefit of subdivision, at $16.5 million. The valuation was conditional on a number of matters, including confirmation of a subdivision plan creating no less than 83 residential lots, and confirmation that there were confirmed rights to take waste water across the adjoining land owned by Whitford Golf Club and to dispose of it on the property in Trigg Road owned by Whitford 140
Limited.
(c) Auckland Council issued a re-valuation in July 2014 at $3.7 million. [15] Whitford was unable to advance the subdivision. The reasons for this are
unclear but it does seem that finance was tight. The amount owing to the ANZ had risen to approximately $8.5 million by early 2014, and Whitford was unable to service the loan. As a result, default interest was being incurred.
[16] Mr Bruce was also in financial difficulty. He borrowed $330,000 from Mr Hayhow to meet obligations he had to the IRD. The loan was apparently secured over Mr Bruce’s shares in Whitford by way of a security agreement dated 16 October
2013 (although a copy of this deed has not been exhibited). Mr Allen asserts that the interest rate was 100 per cent every three months. This has not been disputed by Mr Hayhow.
[17] In April 2014 Mr Bruce severed his relationship with Whitford. He also defaulted on his obligation to repay Mr Hayhow the personal loan secured over his shares in Whitford.
[18] Mr Hayhow has exhibited an unsigned document which records that he had the right, as Mr Bruce’s attorney, to transfer Mr Bruce’s shares in Whitford to himself when Mr Bruce defaulted on the loan. Mr Hayhow’s solicitors – Barter & Co - sent a share transfer of Mr Bruce’s shares signed by Mr Hayhow as both
transferor and transferee to Whitford on 14 July 2014. It recorded the transfer of the shares at $754,027.39. There is no explanation as to how this figure was reached.
[19] Mr Allen does not refer to any attempt by Mr Hayhow to take a transfer of Mr Bruce’s shares. Rather he says that Mr Bruce’s shares were transferred to a Mr Harnish and that Mr Harnish became a director of Whitford.
[20] Mr Hayhow says that Mr Allen refused to register the transfer sent to him by Barter & Co, and that he (Mr Hayhow) subsequently entered into an agreement with Mr Harnish to purchase the shares for $914,000. He says that this agreement was later breached by Mr Harnish.
[21] In any event discussions between the ANZ and Whitford broke down, and ANZ determined to sell the property by mortgagee’s tender. It issued an invitation to tender through its solicitors, Buddle Finlay, on 16 April 2014. Inter alia, it required the successful tenderer to pay a deposit of 10 per cent of the tendered sum.
[22] Mr Allen lodged a tender in his own name in the sum of $9 million. He may also have lodged a competing tender together with a Mr or Mrs Ma. Again this is not clear.
[23] Mr Bruce also lodged a tender in the sum of $10 million.
[24] Mr Allen became aware that there was a competing tender and he increased the tender in his personal name to $12.5 million. Mr Allen seems to have envisaged that this would produce a surplus of some $4 million once the ANZ was repaid which would be available as some kind of “money go round” (Mr Hayhow’s words). Mr Allen says that he had an agreement with Mr Hayhow, that Mr Hayhow was to provide the necessary funding, and that he (Mr Allen) would arrange for the land for the waste water treatment system on Trigg Road owned by Whitford 140 Limited to be secured so that the subdivision could proceed. Mr Hayhow denies agreeing to finance anything other than the initial deposit. He says that Mr Allen agreed to contribute $4 million and that Mr Allen represented that he had access to an additional $7,250,000 from a financier. He says that Mr Allen also promised that he could provide for a water disposal system so that the subdivision could proceed.
[25] Mr Allen was the successful tenderer at $12.5 million. A tender agreement was concluded between the ANZ and Mr Allen, and Mr Hayhow and his wife personally paid the required deposit – $1,250,000 – to the ANZ.
[26] A new company – Whitford Property Developments Limited, was formed on
8 May 2014 by Mr Hayhow to complete the purchase under the tender agreement. Mr Hayhow was the sole director and shareholder. Mr Hayhow says that this company was formed to advance the joint venture he and Mr Allen had agreed to in relation to the property. He annexes to his affidavit a memorandum of understanding which he says records the joint venture agreement reached. It is not however signed.
[27] Notwithstanding that it did not then own the property. Whitford Property Developments Limited entered into an agreement in early June 2014 agreeing to sell the property to an entity known as Whitford Village Holdings Limited for $21 million. The agreement was subject to Whitford Property Developments Limited obtaining a resource consent to subdivide the property.
[28] The tender agreement between the ANZ and Mr Allen fell due for settlement on 16 June 2014. Mr Allen did not settle.
[29] A deed of nomination was entered into on 18 June 2014 between Whitford Property Developments Limited and Mr Allen. Mr Allen nominated Whitford Property Developments Limited to complete the agreement with the ANZ and take title to the property, and Whitford Property Developments Limited accepted the nomination. Mr Allen also agreed to cause Whitford 140 Limited to comply with its obligations in relation to the land in Trigg Road, and to cause Whitford Green Limited, which had entered into the agreement with Whitford Park Golf Club Inc permitting access over the golf club’s land, to assign the benefit of that agreement to Whitford Property Developments Limited.
[30] Neither Mr Allen nor Whitford Property Developments Limited settled the tender agreement with the ANZ. Mr Hayhow says that Mr Allen failed to either provide the $4 million to the joint venture, or to procure for the joint venture the promised waste water disposal system.
[31] On 16 July 2014 ANZ issued a settlement notice. It gave Mr Allen and Whitford Property Developments Limited until 23 July to comply with the settlement notice and settle the tender agreement.
[32] Mr Hayhow says that Whitford Property Developments Limited could not settle with ANZ because it could not borrow on the security of the property. He asserts that Mr Allen “was not bankable”. Mr Hayhow says that he personally was “bankable”, but that no lender would lend against the property, and that what was needed was a resource consent and sewage/waste water solution. He asserts that Mr Allen controlled these matters, but that despite agreeing to supply them, he failed to do so.
[33] The settlement notice was not complied with, and on 23 July 2014, ANZ cancelled the tender agreement. It forfeited the deposit paid by Mr and Mrs Hayhow and credited it against Whitford’s debt.
[34] Mr Bruce then came back into the picture. On the same day as ANZ cancelled the tender agreement, he gave notice to the ANZ under s 102 of the Property Law Act 2007, requesting that it transfer the mortgages to him as guarantor. (By this stage it seems that there were two mortgages – both in favour of ANZ).
[35] Mr Allen asserts that Mr Bruce had made a prior arrangement with Mr
Hayhow and/or Coumat to this end.
[36] The timing of events thereafter is not clear.
[37] On 23 July 2014 (although it is not clear whether he had then taken an assignment of the mortgages) Mr Bruce, purporting to act as mortgagee, sold the property to Coumat. For some reason which is not explained, there were two agreements – both dated 23 July 2014, and both timed at 4.17pm. The first agreement was in the sum of $7,454,903. The second agreement was in the sum of
$10,014,956, made up as follows:
(a) $1,310,054, being the extinguishment of Mr Bruce’s debt as borrower pursuant to the term loan agreement dated 16 October 2013 that he had with Mr Hayhow;
(b)$1,250,000 being the deposit which had been forfeited by the ANZ on cancellation of the tender agreement, and which had been paid by Mr and Mrs Hayhow to the ANZ bank;
(c) $7,454,902 being the amount secured by the mortgages to the ANZ;
Mr Allen says that there were additional moneys paid or payable by Coumat, namely
$51,050 being an amount invoiced to Whitford by Mr Hayhow’s solicitors and
$46,546 being an amount owing to Buddle Finlay (ANZ’s solicitors). Mr Hayhow says that the only cash paid by Coumat was that detailed in (c) above, that the payment referred to in (a) was a “nominal transaction”, and that the payment referred to in (b) was simply recognition of the moneys he (and his wife) had previously paid to the ANZ. He does not comment on the amounts Mr Allen asserts were paid to the solicitors named above.
[38] On 30 July 2014, Whitford and Mr Allen’s solicitors wrote to Mr Hayhow’s/Coumat’s solicitors, and to Simpson Grierson (which firm it seems was also acting for the ANZ) requesting that they hold in trust the sum of $2,560,054 pending an application being made to the Court.
[39] On 31 July 2014 Buddle Finlay for the ANZ responded to Whitford’s solicitors. The letter recorded that Mr Bruce had requested, under s 102 of the Property Law Act, that the bank transfer its mortgages and its general security agreement to him. It recorded that the bank’s then position was:
(a) The statutory right to redeem or request a transfer of a mortgage under s 102 only crystallised on payment of all moneys due, and that no payment had been tendered by Mr Bruce.
(b)The bank had an obligation to transfer its mortgage upon any entitled person complying with the requirements set out in ss 102 and 103 of the Act, including tender of payment of the required amount.
(c) Mr Bruce had never been a mortgagee of the property, and that he did not acquire any such interest on 23 July 2014. The ANZ asserted that
Mr Bruce was incapable of conferring any entity or interest in the property to a purchaser on that date.
[40] At some stage the amount then outstanding and owing to ANZ - $7,454,902 was paid either direct to the ANZ by Coumat, or to Mr Bruce by Coumat and then by Mr Bruce to the ANZ. In any event the ANZ debt was repaid. The mortgages were then assigned to Mr Bruce.
[41] Mr Bruce must have signed a transfer because Coumat tried to register the same. There were initial difficulties, because Mr Allen had lodged a caveat to protect his interests under the tender agreement. He refused to remove it, notwithstanding that the tender agreement had been cancelled by the ANZ. It was
only removed by order of Woolford J on 30 July 2014.2
[42] Mr Bruce has also taken an assignment of ANZ’s rights under the general security agreement which had been given by Whitford. He appointed a receiver of Whitford on 12 August 2014, claiming that as assignee he was still owed $86,758 that was secured by that agreement.
[43] Mr Chase, who is the owner of a real estate firm called Zest For Realty Limited, has filed an affidavit saying that he was instructed by Mr Hayhow to seek a purchaser for the property as early as May 2014. He says that a listing agreement was signed by Mr Hayhow as director of Whitford Property Developments Limited, and by Mr Allen, on 23 May 2014. He says that he found the buyer for the property
- Whitford Village Holdings Limited - and that it offered to buy the property for $21 million, conditional on resource consent being obtained for residential subdivision. He says that offer was accepted on 11 June 2014, and that a deposit of $1,250,000 was paid. I have referred to this in paragraph [27] above. Mr Chase says that after it had purchased the property, Coumat requested that a deed of novation should be signed, whereby it would assume the obligations of Whitford Property Developments Limited under the sale and purchase agreement. It seems that no deed of novation was signed. Rather, on 5 September 2015, Coumat drew up a new agreement in its name as vendor, and asked Whitford Village Holdings Limited to
sign that agreement. Mr Chase says that the purchaser did sign the new agreement
2 Bruce v Allen HC Auckland CIV-2014-404-001867, 30 July 2014.
and that the resource consent condition contained in the initial agreement was waived. Whitford Village Holdings Limited lodged a caveat against the property. Mr Chase says that the agreement did not however settle. Rather Coumat cancelled the agreement. It has since resold the property to other entities, namely Phoenician Investments Limited and Suzhou Huating Energy Investments Development Co Limited, as joint venture partners. The consideration payable under this further agreement has not been disclosed. Mr Chase has annexed to his affidavit a letter from the purchasers’ solicitors recording that the agreement is subject to due diligence being completed, and advising that the last date for satisfying the condition is Friday 26 June 2015. It is not known whether there are any additional conditions.
[44] On 17 September 2014 a Mr Whittfield was appointed as the liquidator of Whitford. His solicitors – Lowndes Jordan - wrote to Mr Bruce in April 2015, recording that the sum of $1,310,054 which Mr Bruce claims to have set off against his shareholder’s loan to Whitford in July/August 2014 was an insolvent transaction. The liquidator has sought payment of this sum by Mr Bruce.
The pleadings
[45] Whitford’s amended statement of claim dated 10 December 2014 is not well drafted. It asserts, for example, that Whitford is the registered proprietor of the property and the mortgagor pursuant to the mortgages given to the ANZ bank. On Mr Allen’s affidavits alone, these assertions are incorrect. They are also inconsistent with other parts of the statement of claim, for example an assertion that Mr Bruce became the mortgagee, and that the property was sold to Coumat and then on sold by Coumat to Whitford Village Holdings Limited.
[46] These infelicities aside, the first cause of action focuses on Mr Bruce’s alleged obligations under s 185 of the Property Law Act. It is asserted that Mr Bruce acted as mortgagee in selling the property to Coumat, and that he was a “statutory trustee” of the purchase price received. It is asserted that the statutory trust required him to repay all amounts secured by the mortgages first, and then to pay any surplus to Whitford as the mortgagor. It is asserted that Mr Bruce failed to account to Whitford for the surplus and that Mr Bruce, Coumat and Mr Hayhow received the surplus proceeds for their own personal benefit and failed to comply with s 185 of the Property Law Act. Whitford seeks a declaration that s 185 has been breached,
and that Mr Bruce, Coumat and Mr Hayhow should account to Whitford in the sum of $2,560,054.
[47] The second cause of action alleges breach of s 176(1) of the Property Law Act. It is alleged that Mr Bruce owed a duty to Whitford and to Mr Allen as his co- guarantor, and that Mr Bruce breached that duty, by failing to obtain the best possible price for the property. It is asserted that the property was worth considerably in excess of the sum paid by Coumat. Relief is sought, but only against Mr Bruce.
[48] The third cause of action alleges knowing receipt and dishonesty by Mr Bruce, Coumat and Mr Hayhow. It is asserted that they jointly acted in breach of trust, and that they have received personal benefits and gains from the sale by Mr Bruce to Coumat of the property. It is asserted that Mr Hayhow and Coumat assisted in effecting the breach of trust by personally receiving funds, obtaining a transfer of the mortgages and purchasing the property, essentially only for the mortgage debt owed to ANZ. It is asserted that Coumat acquired the property as a dishonest recipient and that it holds the property subject to an equitable claim by, and in trust for, Whitford as a beneficiary in the sum of $2,560,054. It is asserted that the sale to Whitford Village Holdings Limited entered into on 5 September 2014 was designed to transfer the benefits and proceeds away from Whitford, and to defeat its rights in relation to the same. It is asserted that Whitford has suffered loss, namely the
$1,310,054 applied to extinguish Mr Bruce’s personal loan owing to Mr Hayhow, and the sum of $1,250,000, being the forfeited deposit paid by Mr and Mrs Hayhow to the ANZ. A declaration is sought that Mr Bruce, Coumat and Mr Hayhow are accountable as knowing recipients and dishonest accessories, not only in relation to these sums, but also for “other gains derived from the private sale and the subsequent on-sale to Whitford Village Holdings Limited” A declaration is sought that Coumat and Mr Hayhow are accountable to Whitford for the benefits and gains derived.
[49] There is a fourth cause of action – relying on ss 344 to 350 of the Property Law Act. It is asserted that Mr Bruce, Coumat and Mr Hayhow entered into and effected the transfers and dispositions with intent to prejudice Whitford as a creditor. It is alleged that the “debtor” (presumably a reference to Coumat although this is not clear) was insolvent, that it has disposed of the property, and that Whitford is
prejudiced by the disposition. Orders are sought that Mr Bruce, Coumat and Mr
Hayhow account to Whitford.
The application
[50] The application relies on r 32.2 of the High Court Rules. It provides as follows:
32.2 Freezing order
(1) The court may make an order (a freezing order), on or without notice to a respondent in accordance with this Part.
(2) A freezing order may restrain a respondent from removing any assets located in or outside New Zealand or from disposing of, dealing with, or diminishing the value of, those assets.
(3) An applicant for a freezing order without notice to a respondent must fully and frankly disclose to the court all material facts, including—
(a) any possible defences known to the applicant; and
(b) information casting doubt on the applicant’s ability to discharge the obligation created by the undertaking as to damages.
(4) An application for a freezing order must be made by interlocutory application under Part 7 or originating application under Part 19, which Parts apply subject to this Part.
(5) An applicant for a freezing order must file a signed undertaking that the applicant will comply with any order for the payment of damages to compensate the respondent for any damage sustained in consequence of the freezing order.
[51] There are three requirements before a freezing order can be made. There must be:
(a) a good arguable case on the substantive claim; (b) assets to which any order can apply, and
(c) a real risk that the defendant(s) will dissipate or dispose of those assets.
The jurisdiction to make a freezing order is flexible, and the overall justice of the case must be considered.3 Where there is a need to protect an applicant, so as to ensure that any judgment ultimately obtained is not rendered barren, that need has to be balanced against any resulting prejudice or hardship to the defendant(s).
[52] A good arguable case will be established if the allegations in the statement of claim are capable of tenable argument and are supported by sufficient evidence, bearing in mind the early stage at which the application has been brought.4
[53] The freezing order will not be granted on a quia timet basis when the actions which concern the applicant are merely threatened.5
[54] There must be assets to which an order can apply. The assets need not be specifically identified, but they should be described in the application with sufficient clarity to enable those to whom notice of the order is given to identify the assets it is sought to freeze.6
[55] Finally, an applicant must show that there is a real risk of dissipation. This is central to the jurisdiction to make a freezing order. It has been noted by Asher J as follows:7
... The disposition of assets that creates a risk that invokes the freezing order jurisdiction must be a disposition that is not in the ordinary course of business. There must be a risk which warrants the extraordinary step of a Court intervening to protect a possible creditor prior to any judgment and prevent a defendant against whom there is no judgment from the free use of its assets. Further, it must be shown that without the freezing order there is a real risk that the plaintiff will be left with a judgment that is partly or wholly unsatisfied.
The fact that a respondent is going to dispose of assets does not of itself invoke the freezing order jurisdiction, unless there is a real risk that any judgment ultimately given in favour of an applicant will be partly or wholly unsatisfied if the freezing
order is not made.8 Mere assertion of a belief that a respondent might dispose of its
3 Shaw v Narain [1992] 2 NZLR 544 (CA) at 548.
4 Hannay v Mount [2011] NZCA 530 at [20]-[22].
5 Euro-National Corporation Ltd v NZI Bank Ltd [1991] 4 PRNZ 365 (HC) at 370.
6 McGechan on Procedure at HR 32.2.03(2)(b).
7 Fortune Mile International Ltd v Judge [2014] NZHC 3146 at [26].
8 Oaks Hotels and Resorts NZ Ltd v Body Corporate 358851 [2013] NZHC 2695 at [18], [19] and
[22].
assets, unsupported by solid grounds justifying that belief, is insufficient.9 An applicant must point to circumstances from which “a prudent, sensible, commercial [person], can properly infer a danger of default” – a test which is “not unduly exacting”.10
Analysis
A good arguable case on the substantive claim
[56] First, I consider whether the allegations contained in the amended statement of claim are tenable and supported by sufficient evidence.
[57] As I have noted the amended statement of claim leaves much to be desired.
[58] Nevertheless these proceedings – although they were commenced as long ago as August 2014, have not made much progress. I accept that the pleadings are likely to be subject to significant tidying up, particularly once discovery has been completed.
[59] In my judgment Whitford does have a tenable case against Mr Bruce, and also against Coumat and Mr Hayhow, in relation to that part of the purchase price as comprises the moneys applied to extinguish Mr Bruce’s personal debt to Mr Hayhow, and as comprises the deposit which was forfeited by the ANZ when the tender agreement was cancelled. If the purchase price included those sums, and it appears on the face of one of the agreements entered into between Mr Bruce and Coumat that it did so, then it is arguable that those moneys should have been paid to Mr Bruce as mortgagee pursuant to the assignment by the ANZ, and accounted for by Mr Bruce to Whitford as the mortgagor. On the available evidence it appears that Coumat/Mr Hayhow were involved in the assignment from the ANZ to Mr Bruce from the outset, in setting the purchase price, in paying off the ANZ, and in failing to pay the additional sums over to Mr Bruce so that he in turn could account to Whitford. Whether Coumat/Mr Hayhow were aware of Mr Bruce’s apparent breach
and whether they knowingly assisted him in breaching any duty he may have been
9 Mogilin v Jo HC Auckland CIV-2011-404-1584, 26 August 2011 at [34]; Oaks Hotels and
Resorts NZ Ltd v Body Corporate 358851, above n 8, at [17].
10 Raukura Moana Fisheries Ltd v The Ship Irina Zharkikh [2001] 2 NZLR 801 (HC) at [122].
under will have to be determined at trial. For present purposes, it cannot be said that the third cause of action is spurious or that it cannot possibly succeed.
[60] It is not however clear that any liability Coumat and/or Mr Hayhow may be under extends to the full proceeds of sale which will be realised on any disposition of the property. The first to third causes of action focus on the extinguishment of Mr Bruce’s personal debt and on the forfeited deposit. The third cause of action seeks to link Coumat and Mr Hayhow to Mr Bruce’s alleged breach of s 185 of the Property Law Act. Even if this cause of action can be made out, there is no identified basis pleaded for seeking orders in respect of the total proceeds of sale. The third cause of action implicitly accepts the sale by Mr Bruce to Coumat.
[61] The fourth cause of action is difficult to understand. It consists of little more than a recital of the statutory provisions with some sparse reference to the circumstances of this case. The assertion appears to be that Whitford is a creditor, and that there has been, or is intended to be, a disposition of the property by Coumat as a debtor. It is asserted that any disposition of the property would defeat Whitford’s rights as creditor. The difficulty from Whitford’s perspective is that s
346(1) of the Property Law Act, which contains the provisions relied on and pleaded, applies only where the debtor was insolvent at the time of making the disposition, or where the debtor engaged or is about to engage in a transaction, for which the remaining assets of the debtor were, or are, given the nature of the business or transaction, unreasonably small, or where the debtor intended to incur, or believed, or reasonably should have believed, that he or she would incur debts beyond his or her ability to pay.
[62] There is nothing in the amended statement of claim filed which deals with any of these matters. As matters currently stand, and as Whitford appears to accept, Coumat owns the property. It seems to have some borrowings, because Mr Hayhow asserts that it is paying $60,000 in interest per month, to service the debt owing in respect of the property. This aside, there is nothing to suggest that Coumat is insolvent, or that it is likely to incur debts beyond its ability to pay the same.
[63] Accordingly, I conclude that Whitford has a tenable case in relation to the
moneys applied to extinguish Mr Bruce’s personal debt and in relation to the
forfeited deposit, but not in relation to such additional moneys as may be obtained by
Coumat, in the event that it manages to sell the property.
What is the identified asset it is sought to freeze?
[64] I now turn to consider whether there is an asset which can be the subject of the freezing order sought.
[65] Here the only identified asset is the property. It could be the subject of a freezing order. However, Mr Gustafson, appearing for Whitford, was at pains to stress that Whitford wishes to cause as little commercial disruption to Coumat as is possible, whilst preserving its claims against Coumat. He accepted that Coumat could and should continue to pursue the resource consent necessary to permit subdivision of the property, but said that it should not dispose of, dissipate the existing equity in, or further encumber the property by way of mortgage, lien or additional secured borrowings. He accepted that if Coumat obtained the resource consent, the property should be sold, provided that it is sold on the terms imposed by Whitford, namely that it should be sold for not less than $21 million, that the sale proceeds should be paid in cleared funds, and that the sale proceeds should be held by third party solicitors pending determination of the substantive proceedings.
[66] It seems clear from the affidavits filed that the property is currently subject to a conditional agreement for sale and purchase. There is a caveat lodged by the former purchaser, Whitford Village Holdings Limited, which may create difficulties. It remains to be seen whether or not the due diligence apparently being carried out by the present purchasers will result in an unconditional agreement. The consideration for which the property has been conditionally sold to the present purchasers has not been disclosed.
[67] Whitford appears to envisage that there should be a freezing order over the property, but that Coumat should be able to apply to the Court to sell the same, providing the conditions Whitford wishes to impose are met. If the property is sold, Whitford is in reality seeking a freezing order over the sale proceeds. It seems to me that, effectively, the application is being made on a quia timet basis. There is presently no unconditional sale and purchase agreement. There has been no sale. If granted on the terms proposed, a freezing order would impose a considerable
restriction on Coumat’s ability to deal with what is, on the face of it, its asset – the property.
Risk of dissipation?
[68] I now turn to the third element – whether or not there is a risk of dissipation. [69] In this regard, the evidence is wholly inadequate. Indeed Mr Gustafson in his
written submissions could put it no higher than that Coumat “could” transfer the property to try to defeat any subsequent execution process. He argued that the sale proceeds “might be disbursed”, and that steps could be taken to leave Coumat as a shell company, with no assets if a sale eventuates.
[70] There is no proper evidential basis for these fears. Mr Gustafson submitted that the factual background demonstrates that Coumat has been involved in questionable practices. I accept that the background transactions are convoluted, and indeed that the same warrant further scrutiny by the Court. A freezing order is not however an appropriate tool through which to condemn a defendant’s business dealings. While Coumat can dispose of the property, that is not sufficient to invoke the freezing order jurisdiction. There is nothing to suggest that Coumat is likely to dispose of the proceeds of sale if the property is sold. Coumat is a party to these proceedings. So is its sole director and shareholder, Mr Hayhow. Any steps he might take to dispose of Coumat’s assets in the event that the property is sold, could well be open to significant challenge.
[71] Mr Gustafson also argued that Coumat has refused to pay commission to Zest for Realty Limited for its services in finding the initial prospective purchaser, Whitford Village Holdings Limited. I do not place any weight on this submission. Mr Barter for Coumat disputed that any debt is owing. It is noteworthy that Zest for Realty has not to date sought to enforce the alleged debt, other than to arrange for service of a demand. Nor has it responded to a letter from Coumat’s solicitors disputing Coumat’s liability. I am not prepared to draw an adverse inference against Coumat in relation to this issue.
[72] I am not persuaded that there is any real risk of dissipation. In my judgment, there is no proper basis for any suggestion that Coumat’s ability to meet a judgment would be in peril, if a freezing order is not made.
Additional difficulty in Whitford’s path
[73] Finally, I note that there is an additional difficulty in Whitford’s path.
[74] The obligation contained in r 32.2(5) is, on the face of it, clear. An applicant for a freezing order must file a signed undertaking that he or she will comply with any order for the payment of damages to compensate the respondents for any damage suffered in consequence of the freezing order. Further, pursuant to r 32.2(3), an applicant must disclose to the Court all material facts, including information casting doubt on the applicant’s ability to discharge the obligation created by the undertaking as to damages.
[75] Here, Whitford has not filed an undertaking as to damages. Indeed it could not responsibly do so. It is in receivership and liquidation.
[76] Rather Mr Allen has filed an undertaking, but limited to the sum of $200,000. There is no information before the Court as to Mr Allen’s ability to satisfy that undertaking.
[77] Any freezing order would significantly constrain Coumat’s ability to deal with the property. There must be every prospect that the resulting damages, if a freezing order were to be made, could be substantial. Coumat would lose the ability to deal with its assets and to use them as it sees fit. An undertaking limited to
$200,000, given the amount involved in this case – perhaps in the vicinity of $21 million - does not meet Whitford’s potential exposure.
[78] It is also clear from the affidavits filed that Mr Allen’s ability to meet the limited undertaking given is subject to doubt. Mr Hayhow has made a number of assertions to the effect that Mr Allen could not meet the limited undertaking offered, that he has outstanding debts, and that he has no property in his name which might be used to satisfy the undertaking. Notably, Mr Allen has not responded to any of these assertions.
[79] While I am prepared to accept that the Court can in limited circumstances give an applicant an opportunity to provide the Court with more information to enable it to assess the worth of the undertaking given, in my view Mr Allen has had ample opportunity, in the present case, to address this issue. He has failed to take the same. I am not persuaded that the undertaking offered is sufficient to protect Coumat/Mr Hayhow if it transpires that a freezing order should not have been granted.
Conclusion
[80] In the circumstances, I am not persuaded that the overall justice of this case requires that a freezing order be made. There is no demonstrated need to protect Whitford. Any order would expose Coumat to significant prejudice and hardship. There is no adequate undertaking as to damages. I am not prepared to make the freezing order sought, and the application is declined.
Costs
[81] Coumat and Mr Hayhow are jointly entitled to costs on a 2B basis, together with their reasonable disbursements.
[82] I expect that counsel will be able to reach agreement on quantum. If there is any disagreement, then Coumat/Mr Hayhow are to file a memorandum seeking costs within 10 working days of the date of this judgment. Any memorandum in response from Whitford is to be filed within a further five working days thereafter. Memoranda are not to exceed 10 pages. I will then finalise the costs payable on the
papers, unless I require the assistance of counsel.
Wylie J
Solicitors:
Alexander Dorrington Lawyers, Auckland for Plaintiff
Barter & Co Limited, Auckland for Second and Third Defendant
4
2
0